Stocks jump in first trading of the year

Stocks rose sharply Tuesday in the first trading of 2012 after investors returned from the holiday and found encouraging economic reports from the United States and around the world.

The Dow Jones industrial average rose 179.82 points, or 1.4 percent, to 12,397.38, its highest close in more than five months.

The Standard & Poor’s 500 index, a broader gauge of the overall market than the Dow, finished up almost 20 points at 1,277. The S&P finished 2011 almost exactly where it started – down a sliver, 0.04 of a point.

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The market may have gotten an extra boost from what’s known as the January effect: Investors sell stocks at the end of the year to lock in losses for tax purposes, then come back in January and buy stocks again.

The effect could be more pronounced this year because the stock market was so volatile in 2011 and more investors were forced to take losses, said Sam Stovall, chief equity strategist at Standard & Poor’s Capital IQ.

Money managers also usually get a fresh infusion of cash at the beginning of the year because workers who maxed out their contributions to retirement accounts well before the previous year ended start contributing again.

These investors are back hunting for bargains, he said: “Investors are a lot like dieters and look to January as a new beginning.”

January is a fairly good predictor of the year to come for U.S. stocks. Only seven times since 1950 has January turned out to be a “major error” in predicting the year to come, according to the Stock Trader’s Almanac.

In other words, whichever direction the market has gone in January, the rest of the year has usually followed.

The market’s gains were broad. All but four of the Dow 30 finished higher. Of the 10 major categories of stocks in the S&P 500 index, only utilities finished lower. Utilities are traditionally conservative stocks to own.

Investors seized on the latest signs of strength in the U.S. economy: Manufacturing expanded in December at the fastest rate in six months, and construction spending rose in November as builders spent more on single-family homes, apartments and remodeling projects.

The price of oil rose $4.13 to $102.96 per barrel in its first trading of 2012. Tensions grew over key Persian Gulf oil shipments after Iran warned the United States to stay out of the strategically important Strait of Hormuz waterway.